Author: Ray Dalio, Founder of Bridgewater
Compiled and Edited by: BitpushNews
As a systematic global macro investor, at the end of 2025, I naturally reflect on the underlying mechanisms of the events that occurred, especially in terms of market performance. This is the purpose of today's reflection.
Although the facts and returns are undeniable, my perspective differs from that of most people.
While most people consider U.S. stocks, especially U.S. AI stocks, to be the best investment of 2025 and the core story of the year, the indisputable fact is that the richest returns (and the real headline story) came from: 1) changes in currency values (most importantly the U.S. dollar, other fiat currencies, and gold); and 2) the significant underperformance of U.S. stocks compared to non-U.S. stocks and gold (gold was the best-performing major market). This was primarily caused by fiscal and monetary stimulus, productivity improvements, and a large-scale shift in asset allocation away from the U.S. market.
In these reflections, I want to step back and examine how this currency/debt/market/economic dynamic worked last year, and briefly touch on how the other four major driving forces—politics, geopolitics, natural acts, and technology—affect the global macro picture within the evolving "Big Cycle."
1. Changes in Currency Values
Regarding currency values: The U.S. dollar fell 0.3% against the yen, 4% against the renminbi, 12% against the euro, 13% against the Swiss franc, and plummeted 39% against gold (gold is the second-largest reserve currency and the only major non-credit currency).
Therefore, all fiat currencies are depreciating. The biggest story and market fluctuations of the year stemmed from the weakest fiat currencies falling the most, while the strongest/hardest currencies rose the most. The most outstanding major investment last year was being long gold (a 65% return in USD), which outperformed the S&P 500 (an 18% USD return) by a whopping 47 percentage points. Or, put another way, measured in gold currency, the S&P index actually fell 28% in real terms.
Let's remember some key principles related to the current situation:
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When a domestic currency depreciates, it makes things denominated in that currency appear to be rising. In other words, viewing investment returns through the lens of a weak currency makes them appear stronger than they actually are. In this case, the S&P index returned 18% for USD investors, 17% for yen investors, 13% for renminbi investors, but only 4% for euro investors, only 3% for Swiss franc investors, and for gold standard investors, its return was -28%.
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Changes in currency are crucial for wealth transfer and economic direction. When a currency depreciates, it reduces a person's wealth and purchasing power, makes one's own goods and services cheaper in others' currencies, and simultaneously makes others' goods and services more expensive in one's own currency. In this way, it affects inflation rates and trade relations, although there is a lag in this effect.
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Whether you are currency hedged is critical. What if you don't have, and don't want to have, a view on currencies? You should always hedge into your least risky currency mix and make tactical adjustments from it when you think you can do well. I'll explain how I operate later.
Regarding bonds (i.e., debt assets): Because bonds are promises to deliver currency, when the currency's value falls, their real value decreases even if the nominal price rises. Last year, 10-year U.S. Treasuries returned 9% in USD terms (about half from yield, half from price), 9% in yen terms, 5% in renminbi terms, but -4% in both euro and Swiss franc terms, and -34% in gold terms—and cash was an even worse investment.
You can understand why foreign investors dislike U.S. dollar bonds and cash (unless currency hedged).
So far, the bond supply-demand imbalance has not been a serious problem, but a large amount of debt (nearly $10 trillion) will need to be rolled over in the future. Meanwhile, the Fed seems inclined to cut rates to keep real rates low. Therefore, debt assets are unattractive, especially at the long end of the curve, and further steepening of the yield curve seems inevitable, but I doubt the Fed will ease as much as currently priced in.
2. Significant Underperformance of U.S. Stocks vs. Non-U.S. Stocks and Gold
As mentioned earlier, although U.S. stocks performed strongly in USD terms, they were much weaker in strong currencies and significantly underperformed stocks in other countries. Clearly, investors prefer to hold non-U.S. stocks, non-U.S. bonds rather than U.S. assets.
Specifically, European stocks outperformed U.S. stocks by 23%, Chinese stocks by 21%, UK stocks by 19%, and Japanese stocks by 10%. Emerging market stocks performed even better overall, with a return of 34%, emerging market dollar debt returned 14%, and emerging market local currency debt (USD denominated) returned 18% overall. In other words, a major outflow and value transfer of wealth is occurring from the U.S. outward, which could lead to more rebalancing and diversification.
Regarding last year's U.S. stocks, the strong results are credited to earnings growth and P/E multiple expansion.
Specifically, earnings grew 12% in USD terms, the P/E expanded by about 5%, plus about 1% in dividends, the total S&P return was about 18%. The "Magnificent Seven" tech stocks, representing about 1/3 of the market capitalization, saw 22% earnings growth in 2025, while the remaining 493 stocks also achieved 9% earnings growth.
Of the earnings growth, 57% was due to sales growth (up 7%), and 43% was due to margin improvement (up 5.3%). A large part of the margin improvement is likely attributable to technological efficiency, but it's hard to conclude definitively due to data limitations.
In any case, the earnings improvement was mainly because the "economic pie" got bigger, and capitalists captured most of the gains, with workers sharing relatively less. Monitoring margins is very important in the future, as the market currently expects this growth to continue, while left-wing political forces are trying to reclaim a larger share.
3. Valuations and Future Expectations
While the past is easy to know and the future is hard to predict, if we understand causality, the present can help us anticipate the future. Currently, P/E ratios are high and credit spreads are extremely low, valuations seem stretched. History proves that this预示着 lower future stock market returns. Based on current yields and productivity levels, my long-term expected stock return is only 4.7% (at a historically low percentile), which is very low relative to the 4.9% bond yield, so the equity risk premium is extremely low.
This means there is little return left to be squeezed out of risk premiums, credit spreads, and liquidity premiums. If interest rates rise due to currency depreciation leading to increased supply-demand pressures, it will have a huge negative effect on credit and stock markets.
Fed policy and productivity growth are two major uncertainties. The new Fed Chair and committee seem inclined to keep nominal and real rates low, which will support prices and inflate bubbles. Productivity will increase in 2026, but how much of that translates into profits rather than being used for taxes or wage increases (the classic left-right issue) is uncertain.
In 2025, Fed rate cuts and credit easing lowered discount rates, supporting assets like stocks and gold. These markets are no longer cheap now. It is noteworthy that these reflation measures did not benefit less liquid markets like venture capital (VC), private equity (PE), and real estate. If these entities are forced to finance their debt at higher interest rates, liquidity pressures will cause these assets to fall significantly relative to liquid assets.
4. Changes in the Political Order
In 2025, politics played a central role in driving markets:
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Trump administration domestic policy: A leveraged bet on capitalism revitalizing U.S. manufacturing and AI technology.
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Foreign policy: Frightened some foreign investors, concerns about sanctions and conflicts supported investment diversification and gold buying.
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Wealth gap: The top 10% of capitalists own more stocks and have faster income growth, they don't see inflation as a problem, while the bottom 60% of the population feel overwhelmed by it.
The "currency value/purchasing power issue" will become the number one political issue next year, which could lead to Republicans losing the House and cause chaos in 2027. On January 1st, Zohran Mamdani, Bernie Sanders, and AOC converged under the banner of "Democratic Socialism," foreshadowing a battle over wealth and money.
5. Global Order and Technology
In 2025, the global order clearly shifted from multilateralism to unilateralism (might makes right). This led to increased military spending, expanded debt, protectionism, and increased deglobalization. Gold demand strengthened, while demand for U.S. debt and dollar assets decreased.
In terms of technology, the AI wave is currently in the early stages of a bubble. I will release my bubble indicator report soon.
Summary
In summary, I believe: Debt/currency/market/economic forces, domestic political forces, geopolitical forces (military spending), natural forces (climate), and new technological forces (AI) will continue to be the main drivers reshaping the global picture. These forces will largely follow the "Big Cycle" template I outlined in my book.
Regarding portfolio positioning, I don't want to be your investment advisor, but I hope to help you invest better. The most important thing is to have the ability to make independent decisions. You can infer the direction of my positions from my logic. If you want to learn how to do better, I recommend the "Dalio Market Principles" course offered by the Wealth Management Institute (WMI) in Singapore.
*Since Q4 results are not yet officially released, the above data are estimates.
When these premiums/spreads narrow, they exert upward pressure on the stock market.
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